Kusurinomadoguchi, Inc.

The Group handles sensitive personal information in the medical and healthcare fields, and has established an information management system by obtaining ISO/IEC27001 and JIS Q 15001 certifications. However, if an information leak were to occur, it could have a material impact on operating results and financial condition. Although measures such as obtaining ISMS and Privacy Mark certification have been implemented, given the nature of handling highly sensitive medical data, the risk of loss of social trust in the event of an incident is particularly significant.

The Group's services depend on communication networks, and there is a risk that the system could become non-functional due to natural disasters, operational errors, unauthorized external access, computer virus infection, and other causes. Although measures such as installing anti-virus software and firewalls have been implemented, if a major system failure occurs, it could disrupt service provision and impact operating results and financial condition.

The Company has entered into an official partnership agreement with EPARK and leverages EPARK's membership base of tens of millions of users. Revenue related to EPARK services accounted for 40.7% of total revenue in the fiscal year under review. If unexpected changes or termination of the agreement occur due to the intentions of EPARK or its parent company, Hikari Tsushin, member sharing would become impossible, which could significantly hinder the development of the EPARK services business. Royalty payments amounted to ¥507,099 thousand in the 22nd consolidated fiscal year, and transaction terms are reviewed annually to maintain an appropriate level.

As of the end of the fiscal year under review, EPARK Inc. held 39.4% of the Company's shares (40.8% including joint holders), making it the Company's largest shareholder and an affiliated company. If the Company's shares were sold on the market due to the intentions of EPARK or Hikari Tsushin, this could temporarily disrupt the supply-demand balance and affect the stock price. It has been confirmed that even if EPARK ceases to be an affiliated company due to a share sale, transactions based on the official partnership agreement will continue.

Changes in medical fee revisions by the Ministry of Health, Labour and Welfare (typically once every two years), advertising regulations, and medical IT policy changes such as online insurance eligibility confirmation and electronic prescriptions may affect demand for the Group's online medical consultation and medication guidance systems as well as the pharmaceutical procurement support service. While the Group strives to conduct advance advertising reviews through its legal department and to monitor policy trends for prompt reflection in its services, unexpected major revisions or tightening of regulations could force changes to its business strategy.

Since November 2024, the Company has formed a business alliance with E-BOND Holdings, Inc. to develop the pharmaceutical "Procurement Support Service," and the company is an important business partner. If, for any reason, the partnership or transactions between the Company and E-BOND Holdings, or between pharmaceutical wholesalers and E-BOND Holdings, cannot be continued, it may become difficult to continue this service, which could impact operating results and financial condition.

Representative Director and President Koji Tsutsumi and Representative Director and Chairman Nobuaki Tanaka play important roles in determining and executing the Company's management policy and business strategy. Although the Company is promoting delegation of authority and clarification of division of duties, if either or both of them become unable to continue their duties, it could affect business development and operating results.

The Group provides a variety of IT services to dispensing pharmacies, medical institutions, nursing care facilities, and health insurance associations, and while it recognizes that no competitor currently offers an equivalent lineup of services, individual competitors exist in each service area. If the Group's competitiveness declines due to improvements in services by competitors or the emergence of superior new entrants, this could impact operating results and financial condition.

Recruiting and developing systems development personnel and sales personnel is a key challenge in order to continuously provide differentiated services from competitors. The information and communications field has high personnel mobility, and although the Company is working on incentive programs and strengthening training, if it is unable to secure sufficient personnel as planned, this could impact operating results and financial condition.

As of the end of the fiscal year under review, SBI Innovation Fund No. 1 held 1,802,700 shares of the Company (15.7% of shares issued). If the fund were to sell shares on the market for the purpose of capital gains, this could temporarily disrupt the supply-demand balance of the shares and affect the stock price. The fund holds these shares as a result of exercising convertible bonds with stock acquisition rights acquired in 2016, and the likelihood is assessed as high while the impact is assessed as low.